Australia’s sub prime mortgage scandal grows

Claims that Australia’s banking sector is conservative, safe and secure have taken a bath in recent days as evidence has emerged of Australia’s own sub-prime lending scandal.

In April, we learned via the Australian newspaper how Australia’s largest banks are being forced to forgive mortgage debts of borrowers granted loans based on falsified or fraudulent information supplied by mortgage brokers.

Then in June, the Australian followed-up with further reports (here and here) of Australian sub-prime lending, and the battle playing-out between unscrupulous lenders and borrowers.

Now the Senate Inquiry into the post-GFC banking sector has revealed several instances of banks providing home loans to people who can’t afford them, and doctoring the paperwork so the loans looked okay. As well as allegations of widespread boosting in loan approvals.

Perhaps the most shocking of the revelations are instances where the banks have been enticing elderly Australians into Ponzi-like mortgages that they had no way of repaying.

In response to the evidence of widespread improper lending practices and the subsequent regulatory inaction, National Party Senator, John Williams, is now calling for a Royal Commission into the banking sector, noting that “If only 10 per cent of what comes in to my office is true . . . we have a problem and we should have a royal commission”.

For now, Australia’s lenders appear reluctant to cooperate. With a Document Retention policy that would do the tobacco industry proud, lenders are refusing to provide low-doc borrowers with copies of their applications, while other lenders have told borrowers that such documents have been destroyed.

Last night’s 7.30 Report ran a story shining more light on the emerging sub-prime scandal. The video is above and the transcript is provided below. You can find the original HD video and transcript here.

Australian Broadcasting Corporation

Broadcast: 13/08/2012

Reporter: Stephen Long

Fraud charges and repossessions are two outcomes of loans provided without all the usual documents required according to a former mortgage broker.

Transcript

LEIGH SALES, PRESENTER: America’s subprime mortgage scandal triggered the Global Financial Crisis and the world’s still recovering from it. What’s less known is that Australia too had its own subprime loans scam, the full extent of which is only just emerging.

Banks and other lenders abused the system of so-called low doc loans, which are designed for small business people.

They were sold by the thousands to pensioners, single mums and people on welfare and many investors are still struggling to pay the price of it. Stephen Long has the story.

FEMALE NEWSREADER (2008): Major Fraud Squad detectives raided the business premises of Mortgage Miracles at a shopping complex on Ranford Road, Canning Vale. They seized a truckload of documents and several computer hard drives. It’s understood the director of the company Kate Thompson was out of town.

STEPHEN LONG: But she wasn’t alone. And now Kate Thompson is blowing the whistle on the banks that conspired in Australia’s own subprime mortgage scandal.

KATE THOMPSON: Hook me up and hook them up to a lie detector test and let’s talk. I’ll lay my evidence on the table. Let’s talk, you know? They will fail a lie detector test measurably. They are corrupt, they are protecting each other.

STEPHEN LONG: Along with similar claims before a parliamentary inquiry last week, her evidence has the potential to rock the finance industry.

DENISE BRAILEY, CONSUMER ACTIVISIT: Through a series of emails from banks to brokers instructing the brokers how to get their deals across the line, make the deal fit. They targeted older people, carers, people on parenting allowance, aged pensions.

STEPHEN LONG: The evidence suggests that banks and other lenders tacitly encouraged mortgage brokers en masse to make up fictitious stories about customers so they could get loans and to falsify their income.

KATE THOMPSON: I do not think there was a bank or non-bank lender that wasn’t doing it. I – from my files alone, I am certain I could evidence every single bank.

STEPHEN LONG: The allegations centre on low doc loans. They were initially designed for the self-employed and small business people, recognising that they can lack documents such as pay slips, group certificates and the certainty of income banks demand for conventional lending. But low docs became a free-for-all.

KATE THOMPSON: They were very tight to begin with. You couldn’t do this and you couldn’t do that. And eventually, they were absolutely shocking. No rules at all. “Tell us what we wanna hear.” “Tell us anything.”

STEPHEN LONG: As banks competed aggressively to sell their loans, the pitch to the brokers was persuasive.

BANK ADVERTISEMENT (male voiceover): No docs? No problem.

BANK ADVERTISEMENT (male voiceover): Self-employed for a day.

BANK ADVERTISEMENT (male voiceover): One day ABN!

BANK ADVERTISEMENT (female voiceover): No ABN required!

BANK ADVERTISEMENT (male voiceover): No assets.

BANK ADVERTISEMENT (male voiceover): Need to ask what they earn?

BANK ADVERTISEMENT (male voiceover): Take what they say without proof.

DENISE BRAILEY: Well that’s the whole point of why we’re saying it’s so fraudulent, because low docs was supposed to be for two years self-employed, and here they’re saying, “Yes, but ignore that. Sign up anyone, whether they’re on a pension ,and get them an ABN number by going online and putting the number on the form.”

STEPHEN LONG: So, as long as they’ve had a business number for one day, …

DENISE BRAILEY: Yes.

STEPHEN LONG: … they can get those low doc loans supposedly for business people?

DENISE BRAILEY: Yes and the bank would automatically approve it.

KATE THOMPSON: How many genuine one-day self-employed people do you have? In eight years of finance broking, I only ever met one real person.

STEPHEN LONG: On the Pacific Highway just south of Newcastle in New South Wales is the home of Michelle Matheson, a single mother of three. A few years ago, juggling bills, she contacted a local business that said it could help people manage their money. The advisor who saw her was in fact a mortgage broker.

MICHELLE MATHESON: He then took me down the path of purchasing a home. And unfortunately I guess the journey along the way has been quite, um, abhorrent, to be quite honest.

STEPHEN LONG: What was your income at the time?

MICHELLE MATHESON: As a sole parent, at the time, and working part-time, probably around about the $24,000 mark. You know, give or take $60 or $70 possibly, like in terms of the actual, yeah, accurate income.

STEPHEN LONG: So you were a sole parent, three kids, $24,000 a year and you were told you could buy a home?

MICHELLE MATHESON: That’s correct, yeah.

STEPHEN LONG: The loan application, which she only received recently, said Michelle was a self-employed professional and had grossly overstated her income.

MICHELLE MATHESON: My income has been stated, not obviously by myself, but either by the broker or somebody at the bank – has been stated to be $75,000 per year. The previous year’s income was $70,000.

STEPHEN LONG: She named the house “Hope”. The situation was hopeless.

MICHELLE MATHESON: I’ve taken on two to three jobs at a time, sold everything to make mortgage payments. I’ve got credit card debt of close to $30,000 because I’ve had to put mortgage payments onto that.

STEPHEN LONG: The broker convinced Denise’s mother to take out a second mortgage.

MICHELLE MATHESON: Mum had to sell her house to stop the option of this home.

STEPHEN LONG: And move to a caravan park.

Over in Perth, Kate Thompson recalls the tricks banks taught brokers to get loans across the line, such as calling rising house prices “income”.

KATE THOMPSON: So when we’re putting down a customer’s income, we are allowed – we were allowed to use capital growth. It was projected income. It’s not disposable income. But we were allowed to use it.

STEPHEN LONG: These are some of the people caught up in the low doc loans scandal.

WOMAN: If you can’t trust your bank manager, who can you trust?

STEPHEN LONG: Their stories have a common theme.

MAN: The loan amounts were wrong. My – and my job was wrong. The amounts I earned was wrong. A small business I had, the valuations was wrong. So there’s 17 glaring mistakes that they had filled in that I didn’t know about.

WOMAN: The head office actually said to me, “Ms (inaudible) I’ve no idea how you got yourself into this mess. You’ve got $750,000 worth of shares and you’ve got $13,000 worth of income from rental properties you have rented out.” And I said, “Well if you can find it, I’ll give you half of it because it doesn’t exist.”

WOMAN II: My total loans were $4.5 million with no income and a 30-year period, which would take me up to 103.

WOMAN: From around the nation they gathered in Canberra as senators heard evidence on the low doc scandal.

DENISE BRAILEY: We need a Royal Commission into the banking sector. They’re strong words, but that’s what we need, because those figures are clearly wrong.

STEPHEN LONG: Denise Brailey says she’s received about 500 loan application forms from people in trouble with low doc loans and not one is clean. The figures fudged, the details forged by brokers or bank officers themselves.

KATE THOMPSON: Six or seven of those bank officers actually used to come into my office and write up the applications themselves. Fudged figures, yes. Let’s – you know, they make it fit. And that’s what they were telling us to do and they were prepared to do it themselves. They were doing it themselves. They knew the game. You know, these people are losing their homes. There is nothing now I can do except tell it like it is.

LEIGH SALES: Stephen Long reporting.

As noted previously, it is not only the obvious fraud that is the problem, but that lending risk is granular. If misrepresentation of income was commonplace, then how many more bad loans are out there that we don’t yet know about? Like in the US, sub-prime lending was not a problem whilst home prices were increasing. But once prices began falling, delinquencies, foreclosures and recriminations exploded.

The emergence of these revelations also strengthens the case for a ‘warts-and-all’ Financial System Inquiry. The last inquiry (the “Wallis Inquiry”), which focused on regulating the financial system, was completed in 1997, and the world of finance has changed markedly since that time, much of it for the worse.

Comments

In 2007: “Reserve Bank governor, Glenn Stevens, has reassured a parliamentary committee that subprime lending in Australia makes up less than 1 per cent of total mortgage lending, versus almost 15 per cent in the US.”

Yeah true. Denise Brailey argued in her testimony that every low-doc and no-doc loan is “sub-prime.” That seems severe, but i would agree that every low-doc loan obtained with a one-day old, non-GST registered ABN is definitely “sub-prime.” Is it possible these loans could have been more than 1% of total mortgage lending for several years?

I thought “sub prime” referred to the proportion of the borrowers income required to service the loan.

I thought it was something like, over 45%, is “sub prime”.

I recall a Michael Lewis article on Ireland, in which he pointed out that not only was it wrong for Irish economists to say at one time, “we don’t have sub-prime over here”, nearly the ENTIRE Irish mortgage market WAS “sub prime” in contrast to the US one, which was only a comparatively small proportion “sub prime”.

I keep saying that the USA had the advantage that 200 out of 260 cities never had a price bubble. Therefore, nations where there were NO cities that did not have a price bubble, will experience a commensurately worse meltdown than the USA.

This was the standout revelation for me in last night’s 730 Report story –

“Over in Perth, Kate Thompson recalls the tricks banks taught brokers to get loans across the line, such as calling rising house prices “income”.

KATE THOMPSON: So when we’re putting down a customer’s income, we are allowed – we were allowed to use capital growth. It was projected income. It’s not disposable income. But we were allowed to use it.”

So rising house prices = income to secure credit = rising house prices

KATE THOMPSON: “So when we’re putting down a customer’s income, we are allowed – we were allowed to use capital growth. It was projected income. It’s not disposable income. But we were allowed to use it.”

That about sums up the underlying stupidity that has caused all house price bubbles in the recent era. But Australian mortgage lenders managed to actually institutionalise the principle in actual loan qualification criteria. I am IMPRESSED. (With the capacity of the human race for continued self-deception in the face of very valid evidence and experience elsewhere).

And it is hardly valid to make scapegoats out of the mortgage lenders, either. Every b—–y borrower had no less excuse for KNOWING what had happened in, say, California. It beggars belief that this stupidity could reach so deep into an entire national population with only a few honourable but marginalised exceptions.

From reading the Senate transcript yesterday I find I have been underestimating Senator Cameron who seemed determined to help Brailey get her points across even though the Chairman would have liked to dismiss her.

The securities offered must be:
– expected to obtain an AAA (or equivalent) credit rating. This rating will need to be confirmed by at least two of the major credit rating agencies before settlement of the issue;
– Australian dollar denominated; and
– settled in Austraclear.

The following minimum requirements apply in relation to all loans in the mortgage pool (as at pool cut-off date):
– 100 per cent prime Australian mortgages;
– Australian dollar denominated;
– mortgage insurable;
– closed pool, no substitution or prefunding permitted;
– maximum loan size of $750,000;
– maximum remaining loan term to maturity of 30 years;
– maximum loan to value ratio of 95 per cent;
– interest only loans may not exceed 50 per cent of the initial principal value of the loan pool;
– maximum interest only period of 10 years; and
– days in arrears for an individual loan payment may not exceed 30 days.

Low documentation loans, that is loans underwritten using alternative income verification procedures, may be included in mortgage pools.

Where low documentation loans exceed 10 per cent of the initial principal value of the mortgage pool, all low documentation loans must meet the following additional requirements (as at pool cut-off date):
– the borrower is not a pay-as-you-go (PAYG) salaried borrower and has provided an ABN;
– a maximum consolidated exposure to any one borrower in the loan pool of $1,000,000;
– a maximum loan to value ratio of 80 per cent; and
– the mortgage is insured.

Mortgage insurability is best demonstrated through full insurance of the mortgage pool, but the AOFM will accept loans that are not fully insured where it is satisfied that alternative arrangements will provide an equivalent level of comfort about the quality of the mortgage pool.

This may be provided by a combination of:
– certification by a body independent of the arranger and issuer that the mortgages in the pool meet the published underwriting requirements of at least one major mortgage insurer;
– all the senior notes in which the AOFM would invest being assigned a AAA rating by at least one rating agency using an ‘expected-loss’ based methodology; and
– equity contributions that enhance the credit of the senior notes.

The issuer must commit to obtain an independent audit of the mortgage pool prior to settlement of the transaction. Settlement will be conditional upon the successful completion of this audit, comprising both:
– confirmation of the conformance of the pool with the above minimum requirements (a ‘pool audit’); and
– confirmation that a representative sample of mortgages in the pool can be traced back to loan documentation (a ‘tie-back audit’).

The issue must provide for monthly reporting on the composition of the mortgage pool and regular reviews of the rating of the issue by the credit rating agencies.

Notwithstanding the fraud involved in doctoring people’s incomes/assets, the greed and lack of personal responsibility is still frightening. Take the woman who ends up with $4.5m worth of loans at age 73. Who does that? Did she ask for $450K and was given $4.5m?? How could you not know what you were signing up for? Did she honestly not know she’d be servicing $4.5m WITH NO INCOME? There’s more to it, there always is. It’s called speculating.

It’s all well and good until property values hit the skids and refinancing debt to fund your lifestyle is no longer possible. I’d expect every smug wannabe Donald Trump to come out of the woodwork looking for someone else to blame here. I’m not saying the banks aren’t to blame, they’re scum, but most of those who signed up (up to 300,000 quoted in another article), knew exactly what they were doing.

On the topic of using future capital growth to get a loan across the line, they’ve also been known to use potential rental return as income in an owner occupier purchase. They initially declare the loan purpose as investment, to meet serviceability minimums and as settlement approaches they revert the loan purpose back to owner occupier, no questions asked. Dodgy.

Let’s give Peter Fraser a days grace to come and defend the industry. He owes me an apology for three years worth of denial that this has been happening.

I agree completely, these people could have easily said “no I don’t want a loan of that size as I can’t afford it.” Instead they signed up. The only thing more gutwrenching that the banks actions here will be the poor ‘victims’ who will blame everyone else for what they clearly did of their own free will. “The devil made me do it” is essentially their excuse.

I can see this being one of those cases where everyone is to blame, so everyone blames everyone else.

Look, you can blame the “victims” all you like, but it won’t stop it from happening again. In my view, three parties share equal blame; the Banks, the Regulators and the Morons who let it happen to themselves. A forth party that is culpable in my view is the Educational System that allows for such a level of financial illiteracy to have people think that putting a mortgage payment on a credit card is a good idea (or 4.5mil at 73 with $0 income is anything but insane). Of these three/four, who are best positioned to keep the situation from arising?

The Morons should loose their homes; the Regulators should loose their jobs (and likely some should loose their freedom), and the Bankers should loose all three (homes, jobs and freedom).

But like others said above, not bloody likely. When we start seeing this for real, that will be the day things start getting better (because they won’t stop otherwise)…

I agree with you. Everyone should suffer the consequences here. The people who approved the loans are just as culpable as the idiots who signed up for them.

I’m not ‘blaming’ the victims per se, just saying how irritating it is when these people come out and blame everyone else for their own stupid decisions. To them I ask, when you signed up, was there a gun to your head? No? So why are you blaming others for what you did of your own free will?

No salesman, not even the best of the best of the best, can make someone do what they don’t want to

+1. Funny how it all comes out once the capital growth stops. There’s nothing to complain about when you’re ‘making money’. Capitalise the gains, look to socialise the losses. Perhaps education isn’t the problem, we seem to be learning very fast here.

I’m not ‘blaming’ the victims per se, just saying how irritating it is when these people come out and blame everyone else for their own stupid decisions. To them I ask, when you signed up, was there a gun to your head? No? So why are you blaming others for what you did of your own free will?

The issue of whether they chose of their own free will is a furphy. The important questions are a) whether they were presented with enough information to make a fully considered decision an b) whether or or not that information was true, accurate and reasonable.

Jelmech, correct, if there is fraud involved those commiting the crime should be punished. That is, if the actual contract was altered afterwards. It seems, however, that it was only applications that were dodgy, not contract documents. They still would have known how much they were borrowing and what the repayments were.

Drsmithy, If these people genuinely didn’t know how much they were borrowing, what the rate was, what the terms of the loan were (fees, charges, repayment structures etc…) then yes, the originator is mainly at fault. But only if the originator/lender deliberately witheld information. There may have been cases of this, but that is for the courts to decide.

I suspect most people have listened to what the broker told them and though “$1m mortgage? I’m going to be rich!” You could argue that they “didn’t have enough information to make an informed decision” on the grounds that they have little financial education but that is hardly the fault of the broker. Blame society for not valuing proper financial education.

Like I said, I don’t release the brokers from blame and I’m sure some people were persuaded to borrow too much, but the vast majority still would have made the decision freely and without being forced. Thus shouldn’t complain when they go belly up, just as the brokers shouldn’t complain when they get a knock on the door from ASIC.

I suspect most people have listened to what the broker told them and though “$1m mortgage? I’m going to be rich!” You could argue that they “didn’t have enough information to make an informed decision” on the grounds that they have little financial education but that is hardly the fault of the broker.
Yes, it is.

The broker (or whoever) has an unfair advantage and vested interests. They have a _responsibility_ to extensively and clearly inform their clients of all the possible risks and downsides using reasonable assumptions.

I suspect most did not – either ignoring or glossing over the risks, or using ludicrous assumptions like 7% annual growth forever – to convince their clients what they were doing was, in fact, quite a reasonable course of action.

Blame society for not valuing proper financial education.
I blame society for not restraining the greedy and powerful from exploiting the weak and vulnerable.

Like I said, I don’t release the brokers from blame and I’m sure some people were persuaded to borrow too much, but the vast majority still would have made the decision freely and without being forced.
Once again, the “free will” thing, while popular conservative rhetoric, is a furphy. All con games and fraud rely on the participants’ “free will”, but that doesn’t make them any less wrong (or in some cases, illegal).

The important issue is not whether or not someone “willingly” borrowed 90% of their home’s value to invest in (or some other equally risky venture), the important issue is whether or not the people who facilitated the transaction misrepresented the situation.

Just remember, the need for regulation in many cases is that people are often foolish and ignorant. That’s why we have safety standards etc, because people can’t be expected to be experts in everything and be able to judge the quality of all their consumption choices.

Financial education would go a long way in this country.

But from my understanding of this investigation, there were/are rules in place that put an obligation on lenders to ensure creditworthiness to a particular standard. And it is the failure to comply with these obligations, and the often intentional failure, that is so disturbing.

From my experience, the 1 day ABN was very useful for getting finance for property speculation. In fact I have been consistently surprised at dodgy lending practices are.

“What’s your total income?”
“$80,000”
“That’s not enough. Let’s try $100,000”
“OK”
“Done.”
“What about your business income? Let’s call you a property investor”
“Nothing yet. I haven’t invested”
“No worries. Let’s just say you’ll make about 5% per year on the capital value”
“OK”
“What’s the current rental income?”
“$300 a week”
“That’s not enough. Do you think you could get a little more than that”
“Maybe”
“Let’s put in $400”
“OK”
“All you need is 5% capital growth and you’ll make a killing”
“Thanks for the financial advice. Are you allowed to tell me stuff like that?”
“Sure”
“So can I afford that?”
“Sure, I mean look at your income. You can easily afford this. You’ll be swimming in money in just a few years”
“Cool. It’s really easy this property investing isn’t it”

I think the issue is that it was sold to them as affordable – whatever sweeteners and terms were used up front, the greed of these poor suckers got the better of them. Then the switch happens: the real payments kick in, and people get well over their head before they realise exactly how much trouble they’re in.

The most galling was a woman saying she has $30k of credit card debt because she put the mortgage payments on it. Who the hell does that? Who the hell grants someone with a mortgage they can’t afford $30k of credit at 21%?

Opinion8red, it’s not a crime to be stupid/ignorant but people shouldn’t be saved from their own stupidity. Nothing was stopping them from getting a better financial education. I taught myself half of what I learned in my degree by simply reading online articles and blogs like this one. Ignorance/Stupidity is not an excuse, ask any police officer.

As people have stated already, nobody seemed to complain when prices were going up. Now that they aren’t, the tears start falling. Call me a heartless and cynical bastard if you like, but I can’t help but roll my eyes at people all of a sudden playing the victim.

Finally, if brokers genuinely commited fraud, they should definitely suffer criminal consequences, end of story. Let the courts do what they need to.

Opinion8red, it’s not a crime to be stupid/ignorant but people shouldn’t be saved from their own stupidity.
Yes, they should. Protecting the vulnerable from exploitation by the powerful is one of the foundations of civilised society.

Nothing was stopping them from getting a better financial education.
Because it’s not like smart people ever get taken in by fraud and con games, right ? Just the stupid folks, and they deserve it.

Ignorance/Stupidity is not an excuse, ask any police officer.
Both are absolutely excuses, which is why breaking laws due to “ignorance/stupdity” attracts lesser consequences than doing so normally. This is particularly true when the “ignorance stupidity” has been the result of advice from people who are supposedly “experts”.

Matt I think your eye for an eye approach comes to terms with the reality that the likes of you and I will be paying fo rthe fraud the punters taken in by the con have no chance of paying an dwill become in all likelyhood welfare dependent.

drsmithy – you said ; “Protecting the vulnerable from exploitation by the powerful is one of the foundations of civilised society.’ And I agree with that, but what I take exception to is who is the arbiter of the weak & vulnerable? Let me get one thing straight from the outset, people who are intellectually disabled are vulnerable – But everyone else in society who has a High School Education (over 98% of us) WOULD KNOW that taking big $$$ with no income is wrong, stupid & irresponsible – so part of the blame & responsibility MUST be laid at feet of the ‘victims’ of this said crisis! To show you how silly what you are saying is, I have heard it stated that currently 55% of person’s who would vote for the coalition are ‘victims of stupidity’ – will you protect them drsmithy????

“Protecting the vulnerable from exploitation by the powerful is one of the foundations of civilised society.’ And I agree with that, but what I take exception to is who is the arbiter of the weak & vulnerable?
That would be us. We live in a democracy the last time I checked, despite endless right-wing rhetoric to the contrary.

Let me get one thing straight from the outset, people who are intellectually disabled are vulnerable – But everyone else in society who has a High School Education (over 98% of us) WOULD KNOW that taking big $$$ with no income is wrong, stupid & irresponsible – so part of the blame & responsibility MUST be laid at feet of the ‘victims’ of this said crisis!
Uh huh. Even when some “professional” is telling you that the income you’ll generate from investing that $$$ will not only cover any payments, but make you rich as well ? Even when the product they’re selling has been deliberately designed to be confusing and opaque ?

The financial illiteracy of the public is well known, as is the greed and lack of empathy of conmen, spruikers and frauds. Most of the FIRE industry relies on this. Hence the reason it needs to be brutally regulated.

To show you how silly what you are saying is, I have heard it stated that currently 55% of person’s who would vote for the coalition are ‘victims of stupidity’ – will you protect them drsmithy????
No, this is something silly *you* are saying.

If I was a psychologist I’d same you lack empathy and compassion. Most of these people are obviously financially naive, they get told a story….you won’t be at risk, it’ll be self funded (from income generated) etc, etc. Yes, I’d say greed/fear on their part plays a factor, but the “Tin Man” Salesman, sorry “Professional Finance Broker” knows how to play it.

I might get wiped for this MattR, but I’m glad I don’t work with you as I know I’d take a strong dislike to straight up.

What MattR is advocating is accountability. And yes, it surprises me not that softies and those of a Left persuasion find this confronting. Our society is chock full of touchie feelies who prefer to feel good rather than DO good.

However, I agree with you MattR. Unless the consequences are clearly seen for these kind of fraudulent actions and gross errors of misjudgement, then no meaningful change can occur. And I include here all the issuers of Debt and their brokers.

People should also take with a grain of salt some of this reporting. Those older clients would have family, sons daughters etc who I feel sure would have known something was afoot with all the property speculation. It’s possible they too felt it was a good deal- to inherit?

Let the chips fall where they may and exercise the law to full without prejudice.

PF was given a choice – post here or over on the dark side. He decided to move over to the dark side and it looks like he is not coming back here any time soon.

I held my nose and had a look at what he had to say on the matter over there. It seems he has difficulty finding “any pure and chaste players in the chain”, including the customers. And something about a fool and his money parting.

My god! Does this guy even begin to understand what fiduciary duty is?? And this guy is supposed to be a mortgage broker.

Maybe that is the problem. There is too much conflict of interest for a mortgage broker to act as a fiduciary. He has the following blurb on his website:

we have both full doc and low doc products from numerous lenders available to help them purchase their next investment property.

I am sorry and no offense meant, but methinks you have not been paying attention. Of course he has insights—he is an insider after all—but the point is he never ever argued anything in honest faith. I thought the same as you to begin with, but then he was caught a few times here at MB making some bizzarre logical leaps to justify whatever he is saying. You just cant debate or argue with anyone once you know it is full of deceit.

Peter Fraser came across as a little bit of a smart alec but he knew his stuff. His arguments were at least well articulated even if I disagreed with him at times.

I don’t think someone like PF would be involved in anything like what they are talking about, he seems like far too much of a straight shooter and the type who would tell the authorities at the first sign of improprierty.

It is a bit like lifting an old bit of tin in the yard and watching the critters scurry off in all directions.

Behaviour on the margins is a lot more influential than people realize. For every outrageous story there could 10 where people overextended by way of a brokers/ bankers wink and a nod. They may be meeting the payments on their jumbo loan now but for how long will they keep their noses to the debt grindstone. 30 years is a long time.

In many ways it is very unremarkable. Do we really think that poor lending practices, common in the countries that had a similar boom, did not have role in our own boom?

I appreciate the importance of buyer/borrower beware but there are reasons we regulate the sale of products that require special skills or experience to understand. Accordingly, i direct the majority of my scorn for the Merchants of Debt.

But don’t forget: the USA had 200 out of 260 cities, that had no house price bubble at all. Australia is resembling the 60 that DID – if you netted them out of the USA aggregate figures, I bet there would be quite a similarity.

Sadly, I fear that once again, and as always, public discussion of this issue will ricochet around the periphery, and never hit the bullseye.

It’s rather like a tick problem. Because we have now spotted the tick latched onto the most sensitive bits (the aged, pensioners, single mums etc), there’s something of a hue and cry. When the tick is latched onto other, apparently less sensitive bits, it takes us longer to notice. Indeed, we don’t realise there’s any problem till the dog is clearly .. sick as a dog. By then it’s usually too late to save it.

The core issue that will be overlooked is that the very nature of banking is akin to that of a tick. It is what it is. A blood-sucking, disease-carrying parasite.

To save the host, you have to remove it completely. To avoid the problem recurring, you have to be vigilant in ensuring it never attaches itself in the first place.

Logically, if you’re getting 3-4% annual payrises, taxed so you net about 2% and real inflation is running at minimum 5%, your living standard is declining. Your ability to service the debt actually suffers.

But the credit expansion that the Austrian economics and goldbug guys like to focus on, does not have to cause a house price bubble unless “supply” of housing is constrained by regulations. The prices of consumer goods for which supply is unconstrained have not gone up just because there is an expansion of credit. Cars didn’t triple in price in 10 years.

Share market bubbles and crashes are something that economies can live with. But urban land affects everybody and everything in the local economy. The “Great Depression” was as bad as it was, because of the role of land prices; few people have even bothered to look at this. If it had just been the stock market, the rebound would have come long before. But land prices didn’t get back to their 1929 level until the 1950’s, in many markets. As I said, this affects everybody and everything. Stock market bubbles and crashes only wipe out voluntary participants, especially as regards the role of credit expansion.

“It is a lot but if we cut out the things like restaurants and new clothes and movies we should get by and so long as we hang on for a few years we can always sell at a profit”

Those are the ones who are getting sick of their lean lifestyles without large capital gains to make it seem worthwhile. Not surprisingly they are not in good spirits no matter what the Treasurer says.

Most people tend to be half glass full types particularly when egged on by the flocks of spruikers.

Surely the courts or a royal commission are capable of deciding this though Dr Smithy. If it was fraudulent speculation turned sour on the part of the home-buyer (and I’m sure we’ll see a bit of that), then let them burn along with the banks. If they were genuine victims of fraud by banks and mortgage brokers, then they should not be penalised.

If the royal commission into the HIH collapse is any guide – and in particular, the role of one M. Turnbull / Goldman Sachs – then I for one would put very little faith in any royal commission into banking sector predatory lending practices:

People are like goldfish… short memory and attention span.. if you wave something in front of them they will take to it like a kitten and a ball of wool.

These people are predators. they know how to entice people and if you spend 1 hour in a room with them they will make you believe you are getting $1M for free. Teaser rates, 35 year loans all of it is geared to make the first 12 months look ok from an affordability perspective once the reset kicks in then its game over.

I agree that people need to inform themselves but if you look at the people who usually are trapped into these things they are in general low-middle income and lack of further education/university.

MSM needs to also take their share of this spouting about the Aussie dream of home ownership and that without your own house you arent “normal”

These people are predators. they know how to entice people and if you spend 1 hour in a room with them they will make you believe you are getting $1M for free. Teaser rates, 35 year loans all of it is geared to make the first 12 months look ok from an affordability perspective once the reset kicks in then its game over.

I agree with this completely, and compounding factors are a) most people’s financial illiteracy and b) the calculated and deliberate obfuscation of financial products.

Or in other words, when some slick salesman gives you a whole bunch of legit looking material that says you really can afford it, I have a lot of sympathy for people that trust these “professionals”.

That’s why I generally come down on the side of favouring the individuals and brutally regulating the financial industry.

It’s all too easy to get on one’s high horse and criticise the “idiots” in our society. Funny though, how Bernie Madoff is the only bloke that I know of to have copped a prison sentence. Take a long hard look at the list of his “victims”:

When you see all your friends and colleagues getting a house, car etc, it’s pretty hard to remain a contrarian in the face of salesman with a tempting pitch, and after all, the banks are the experts, surely they wouldn’t lend me that much if they didn’t think I could pay it back…..

But come ON, is no decision in people’s lives so important that they can’t expect to be held responsible for it? Borrowing $500,000 plus, and “no responsibility”? For Pete’s sake, this isn’t just an issue of financial literacy, it is an issue of the foundation of basic morality in society. The people who claim there is a moral slippery slope to societal ruin are 100% correct; it is not just breakdown in family structure and a fatherless children epidemic that is a factor.

I have sympathy for the so called “idiots” too. And I believe they shouldn’t be abandoned by the society.
But at the same time I’m worried, if we are to save them using tax money, what kind of messages are we sending to the general public?

Isn’t it sort of the same as bailing out banks? “Reckless risk taking can potentially bring you huge returns. If anything goes wrong, you will still have your arse covered by the taxpayers.”

One of my friends has this exact mentality. A very smart guy, who believes in buying 2 properties per annum.
He also believes in “The govt will NEVER let property market collapse. See what happened in 2009.” Plus “If it doesn’t work out, I will just queue up at Centrelink.” And he has a family of four.

Agree Hewell…and are we just going to save the poor illiterate or will we ‘save’ everyone especially the crowd who have bought wonderful Sydney and melbourne houses they KNEW they could not afford on the basis of the bigger the loan, the better the property, the more capital gain (TAX FREE) we will get.

Whether these people had ‘good’ or ‘bad’ intentions, the end result will be the same, you have to take responsibility for your actions. We are witnessing the fruits of our ‘no fault’ society. Time to rebuild.

I gave up on politics and to a lesser extent the hope that at some point everyone gets what they deserve, when guys like Corzine, Blankfein, Dimon, Fuld etc got diamond rolexes and 8 figure salaries for gambling at Wall st casino… all we ended up with was to pick up the tab.

I would hope that here in Aus it is different and that senior members of these so called financial institutions are put in front of a court facing criminal charges. But I wont hold my breath

That’ll depend on the ‘terms of reference’ presuming an inquiry. Which in turn will be defined by who they want to catch or how much of an eyesore they want exposed….. You can be sure there will be some fast talking wherever there can be to have input into those terms. And after it’s all over everyone can have faith that the system worked & that it can never happen again 😉

We are greedier, we are lazier and we have less sense of extending empathy to victims than the U.S.
I’m not sure I agree. After all, this:

I do not think the social re-engineering of the disasterous Howard years will be unwound fully in my lifetime.
Was just the outcome of our conservatives trying to emulate American conservatives.

From the couple of years I spent living in America, I’d have to say the “screw the poor, they deserve it because they’re lazy and stupid” – personified by some of our resident Libertarians above – was _far_ more prevalent there than it is here.

That might just be because I spent most of my time in Arizona though. 🙂

I understand what you mean, and yes it has been well and truly debunked, but a different take on this Karan:

Friends of mine in Brisbane “handed in their keys and walked”. It was pretty easy, they just declared bankruptcy. They’re young. They’ve moved in with parents and both gone back to studying again. By the time they’ve finished their degrees the bankruptcy period will be over and they’ll be ready to start again with a clean slate.

I can see many young people conned into taking on debt mountains doing the same thing over the next few years. If it happens as quickly as they took the debt on, it will be pretty horrendous for the banks/mortgage insureres.

Sorry, no gold there Mining B. Some yrs back we were going to lend 70k to my B.I.L to pay off a credit card debt. Went through it all, explained what he would have available to spend etc, anyway I spoke to a financial councilor at the Salvos who talked me out of it. He went around there and was declared bankrupt within the week for now cost!

I wish more people would do this, as I can’t think of anything else to better discipline the banks than a wave of bankruptcies.

But I think the perception people have of bankruptcy, plus the stigma, is far worse than the reality. Not a get out of gaol free card, but a chance to get out from under a mountain of debt, and start again.

It’s easy to walk away if you haven’t put anything into the property (most speculators). What about responsible saving 20% deposit for years and then the property drops 30% like in the US. Not so easy to walk away and declare bankruptcy.

Jumping Jack…at the risk of being boring I pose this question re the young people.
When they bought did they duck the mortgage insurance by getting their parents to guarantee them?
I understand there are a few cases stareting to emerge where this is the case.
Someone at the enqury should have asked the question as to what % of new loans this might apply. It is perhaps the sleeping monster in all this.

The 1, 2 or even 3+ years of mortgage/rent free living is pretty nice though for those with balls of steel. If you keep one credit card in good standing you’ll get hit with universal default and the rates will get jacked, but it’s not taken away.

Friends are looking to strategic default in the US after getting into another house (dual incomes allow them apparently) and they have it all planned out. They’ll have lower payments on a larger house in a nicer neighborhood.

Yes, but the crucial thing was that the same ground zero State that had non-recourse laws also had anti-urban-growth policies. Without California the USA wouldn’t have had a noticeable bubble and crash at all. Vegas and Phoenix and Miami could have been shrugged off.

Karan, it’s wasn’t a blanket statement, and I have friends in Florida in the RE business, and they tell me for many caught up in the sub-prime it makes no matter that their credit is ruined for a few years.

Think of the money involved, think of all the people who will have to admit they resided over this, think of all the public servants, the regulators, the hacks, the hustlers who will have fingers pointed at them.
The sector involved is such a huge part of our economy and the housing sector is another large part, imagine a full genuine enquiry and what that will do to confidence in housing, in the share market darlings and then onto the wider economy……….no, nobody is going to wont this.

If anything happens at all it will be what we have already seen in America, a few small fish get dragged through the justice system some of them get disproportionate rulings, some of them may blow their brains out.

The larger corporations high level staff remain untouched, these staff must remain, if they were to be removed or prosecuted the new staffs first order of business would be to find out what really went on

They just need to find the right angle for the story. What would help is if they could find a mortgage broker who was a refugee and has recently returned from the Olympics where they committed the inexcusable crime of coming second. It would seem to be of even more relevance to the public if the said broker’s girlfriend was once a masterchef contestant that has since become a bikini model for lads mags like the Herald Sun and Age website. I think then, and only then, will the media believe that the story is of interest and should be shared with the public.

Pretty sure there was something about some mortgage broker getting a loan approved for a 90 year old woman the other day on A Current Affair or something.
Although to be honest I only watched about 30 seconds of it so I could be wrong.

In 2006 and 2007, I was a Retail Lending Analyst for a Motor Finance Company. We used to tell the Car Dealerships how to massage the applications, so that they would “score” better on the risk assessments.

We used to check a couple of approvals a week, to make sure the details were right. They were rarely right. You would raise it with the bosses, and go – Dealer XYZ has put dodgy data in. Bosses would rely “Dealer XYZ is very important to our business, so we have to take the good with the bad”.. So long as there was more good then bad, then it’s not an issue (and in those days there was).

Things used to get applications across the line:
– Asset Backed (A lot of people that were paying off mortgages put a status of “Owning” there home, as opposed to “Purchasing” – to make risk assessments look better. All they needed was to provide a Rates Notice to confirm they owned it, so a load of BS)
– Customers were rarely asked to provide Bank Statements to show true cash flow (including other outgoings for other commitments, i.e. mortgage, lifestyle, etc.).
– Customers income was rarely checked, but it was very common for total income packages including Super to be included
– Rental Property income was always included, but the shortage on a negatively geared property never displayed (which has cash flow implications)
– Workers who were “Casual” or “Contract” were always put in as “Full Time Permanent” to maximise the score

“Hook….Hook me up
“I want to feel the rain in my hair
“Hook….Hook me up
“Where should we go?
“I don’t even care (I don’t even care)
“Hook….Hook me up
“I want to feel the rain in my hair
“Hook….Hook me up
“Where should we go?
“I don’t even care
“Anywhere is good enough
“Hook me up
“Hook me up
“Hook me up”

I work for a large finance broker, mainly auto finance but also business equipment and other small assets, and I can tell you, this kind of thing doesn’t happen with us at all.

Self employed individuals can do a self-declaration if they are asset backed/putting in a 30% deposit AND have been employed for at least 2 years, preferably GST registered. You can never put someone down as ‘owning’ rather than ‘purchasing’ as it takes the lender 1 minute to check if a house is encumbred and if you do that and they find you put in incorrect details you start getting a number of uncomfortable questions. Basically they tell us to tell the truth or risk losing our accreditation.

Consumer financing is even more stringent for us.

Dealers on the other hand, are given a lot more leway and don’t even come under the same tough regulations as we do, which is a complete joke.

The biggest problem lies with banks and financial insitutions assuming that property prices are always going rise forever. They think they can still profit if they foreclose on the home down the track. Vehicles on the other hand, always depreciate so they tend to be a little more diligent, at least since I started working in the industry.

But who, and where, was going to give good advice in the last 12 years? I couldn’t get anyone to listen to me. I am gutted at the fate some of my young friends have been set up for. And they know it, and so do some of the other people who were advising them. I was just a “nutter” who wasn’t worth listening to.

We have seen this so many times now in so many countries with the exact same result.. bankers get a fine paid for by the bank.. which then conveniently dumps all this toxic crap onto the public purse.. no one needs to admin guilt and the carousel continues keeps turning looking for more suckers ..with slightly better credit rating than the last lot

Perhaps in some ways Australia has a chance to step up and do the right thing here. There is so much maintstream sentiment against these F**k**s that if the Govt waded in and started issuing summons to haul those in charge in front of criminal courts. But as most politicians are beholden to those same financial institutions for donations.. I just cant see it happening.

Whenever I see things like senate committees or panels etc setup to investigate this you know its not going to happen

I would also like to see PF back. He has skin in the game so we can weight his comments accordingly, but I feel that the quality of discussion is diminished when everybody has more or less the same point of view.

He played an important role, almost devils advocate. Prompting the folk here to address the rebuttal you’d expect from a vested interest or ingrained bull. It pushed the discussion here further than “I agree “.

Cd, If you’re talking about me then you need to pull your head in. I’ve been following these guys since pre-MB, and post often though only when I have something to add.

I do think PF has good insight and that the ‘Us against them’ mentality is making MB worse. It’s like grown men acting like a pack of babies sometimes – all based on differences in outlook or profession.I would have thought someone called ‘Cognitive Dissonance’ would have welcomed another opinion?

Personally, I like to see the obviously biased / astro-turfers on here too (provided Houses and Holes keeps qualifying them with a warning!). We’re not going to get nearly as many insights in the comments section by all agreeing with each other. We would run the risk of becoming overly polarised towards the consensus and become inflexible to change. Debate forces us to constantly sharpen the tool 😀

I think it also helps when the astro-turfers raise naively appealing but factually incorrect things. They get debunked pretty easily, and the shut-down is then publicly visibly for everyone to see.

Is it really news that mortgage brokers and bank managers work together to get loans across the line as everyone benefits from pushing more credit.

Bank manager’s bonus directly linked to the total amount of credit they issue for the year and mortgage brokers getting a cut from the loan transaction.

I think this is the start of the blame game as property not delivering promised returns. But I don’t buy that government, public or banks didn’t know there is a great incentive in pushing low doc easy credit for most parties involved.

I dont have a real lot of optimism. The RBA is responsible for banking stability. Our money system is based on debt, that debt is secured against property. The property market is distorted beyond belief with all manner of fiscal adjustments, the rental market is skewed by 41% of the tenants recieving rent assistance. I suspect that the results of any royal commission will be as Senator Cameron stated , alot of money spent but very little to show for it as there is no votes in it. Who is going to vote for someone that is going to cause pain, even if its cauterising a septic wound that is filled with the pus of dodgy debt.

As Keating said, always back self interest, an unfortunatly that is what has caused this mess, ignorant consumers, greedy credit providors and skewed financial,social and property systems that are designed to reward debt in favour of savings.

I wouldn’t say there are no votes in it. Those that think you should be able to buy a place – provided you have a decent income, and shouldn’t have to take on a crippling debt – would back something that reigned it in. If you look at the volumes, there’s an awful lot of buyers on strike at the moment, so there are at least some who would support it.

+1000 all the people who don’t want to commit to a lifetime of debt slavery and want prices to revert to something resembling 3 times income will be in favour of a royal commission that prevents people doing anything and everything, regardless of legality, to keep property prices high.

Each day/month/year there are more people who realise they cant afford to buy and get VERY frustrated by this fact

That’s exactly it. This is all coming out because people are aggrieved because their gamble hasn’t paid off and they are losing money with stagnant and falling house prices. This really is a popcorn moment!

I bet what will follow, because it is no brainier. The banks will be rescued with taxpayers money and during the difficult time which will follow, the baby boomers and pensioners will be blamed to be too much of a burden to the society and the budget and the cause for young people unemployment, hence the government will have to cut the budget expenses for pensions, public health care and public education and cut the taxes on the wealthiest, because they make the employment (in China mostly, but still it is only theirs credit). No brainier isn’t it?

But much of that government expense was on the back of house price increases and volumes. The govt promised far more in the good times than it could ever deliver. But that’s how democracy works. People make unrealistic demands and govts are forced to run ponzi schemes to pay for them.

I don’t think increasing taxes on the wealthy is going to make up the shortfall, just as it won’t in the US.

The fantasy world that has been built over the last couple of decades is starting to fray at the seams.

Lori, ^AXHJ is doing quite well, and this sector is a biggish employer and with BB’s will grow I’m reading, so maybe that is a key industry the mining boom; sheep->mining->health care. I don’t know, but there is always another side to the crap about BB’s. My dad is one, and he’s doing it tough.

The truth is that government previously and now don’t plan for the future in most cases.

“The truth is that government previously and now don’t plan for the future in most cases.”

That is right, but why is the question? Why do you think democracy works in this wrong way? Because of the ideological manipulation and poor education. How can a person with $24000 annual income, for example, undertake a house purchase? Either the education didn’t give her enough knowledge in math, or the mortgage broker is a criminal.

The first is a easy solvable problem – teaching math at school. Why is she deprived of the right knowledge? Because it is much easier to rule over sheep like population than over well educated (in the sense of the enlightenment) people.

The second is also easy to solve – take the broker in jail.

The sad part is that none of those will happen and everyone will blame the government.

But to blame the government is to blame capitalism itself, because there is no capitalist economic system without its relevant political organization. The governments have always served the interests of the economically powerful people. If it doesn’t do its job as expected by the majority of the society, that is because it doesn’t want to do so and because its agenda is different from it states.

Lori. Assuming maximum eligibility single parent three kids would receive circa $45,000 per annum (tax free) excluding all extras (rent assistance/pharma/large family etc)ie Parenting payment, family A and family B, so for starters the numbers look dodgy…

2d, can you provide a breakdown on that number, I think you’re grossly inflating it and I can’t be bothered to go to Centrelink to check it out (you must have, otherwise you’re pulled it out of….!!!). Someone here once before claimed a single mum with 5 kids was 100k pa, bullshit.

For the record, that was me. A relative, single five children confirmed circa $63,000. (Friend’s wife works at Family Services.) Have taken an interest in welfare payments ever since, it is not rare for recipients to forget to mention some portion of benefit received.

The following are straight off the Centrelink website family assistance calc. and are based on 3 & 5 children for a single parent, only asset I stated is $1000 in the bank and no reportable income. The two amounts include newstart allowance, FTA A & B, large family supp and rent assist based on rent of $350pw. The yearly amounts for a 3 & 5 child single parent family is $34100pa and $43550pa. A long way short of 100k for 5. All of it is taxable.

In addition FTA A & B is available to any tax payer based on income which you should know because if your wife is not working on your 300k plus engineering salary she should be receiving the full FTA A part of the allowance. Counting the baby bonus is a red herring as well, as I’m sure you know.

The education system does not prepare children for life unfortunately…IMO. If they don’t take the right path and learn about the monetary system or their parents don’t know as well then this lack of knowledge continues.

Education is a big issue, and we expect government to solve it, but is anyone with children at school now happy…I’m not which is why I teach my daughter about debt, budgeting, and not listening to sprukers.

As for governments, we change them, but nothing changes, which is why the system is flawed.

a63…a lot of parenting is done by sitting the kid in front of the TV for hours on end from the age of 1!
How would they learn anything other than what the spruikers say is true.
Society has become something of a tragedy.

I was raised by the generation before the baby boomers. Here’s my take on my experiences (pardon the lame lyrics)

My daddy’s recovering from his prostitis,
The experience inspired my to write this,
See, daddy was born in 1923,
He spent his whole life practicing austerity

I was wondering around the house one day,
When I saw my daddy and to my dismay,
He was in the laudry and a splish splash,
Anyone driving past would cause a car crash

What I saw next had my heart a racin’
He was washing his disposable incontinence pad in the basin

“Dad!” I yelled, “it’s disposable,you cant use those twice,
Use them once then throw them away, Nice!”
He said “Yo! It’s in perfect condition,
Use things once then throw them away?
What is it with your generation?”

He went to the line and hung it out to dry,
Daddy’s lived this way his whole life,
He ain’t changin’
Wearing disposables twice won’t make you feel ill
That’s the one thing my daddy said to me
He’s been practicing austerity since 1933.

I learnt one thing from my Daddy and the GFC – no change for me, bring on the austerity

I am exactly like you daddy and I admire people who really make difference for saving resources and energy and use stuffs until they can be used, not just until fashionable. At the same time I am a baby boomer and I am very much offended when someone blame our generation for everything, just because it happened that global financial deregulation occurred in our life time. The master minds of this changes are very much happy to see inter-generational conflict emerging in the West because of the GFC.

I learned that from my mother: Always live below your means, because the way up brings many pleasures, but the way down is disastrous and brings only pain and destruction of everything you love. I always follow my mother’s advice.

“Always live below your means, because the way up brings many pleasures, but the way down is disastrous and brings only pain and destruction of everything you love. I always follow my mother’s advice.” –
Yes that is true, easier to be born into poverty and make your way out of it. But then you hear of stories like “i used to be a high flying lawyer, earning 6 figure sums, then I went to Bangladesh and decided to stay there, I opened up an orphanage….couldn’t go back to my old life etc” So it can go both ways. Look at the rates of mental illness in this country, despite social welfare state. In Lebanon, there is a sense of community, no welfare net, people are happier..(according to my lebanese friend)

“the baby boomers and pensioners will be blamed to be too much of a burden to the society” – Don’t get offended if people blame your generation. I am an X/Y we are as much to “blame”, I bet my dad’s generation were blaming their parents for the Great Depression. the 1920s were a decade to be ashamed of, similarly 1997-2007. There was an article in the Age about a book about Debt that, it has been around for 30,000 years. You can be addicted to it. Just like drugs, sugar, gambling. Humans are habitual beings – we are creatures of habit. Habits help us to survive, gives us comfort. But it can become a problem if your life becomes disfunctional because of it. And people exploit the most vulnerable and make money/power out of it and cant let that go-they have an addiction too. That is why THEY (the 1%) have trouble deleveraging.

There is this concept of intellect over instinct, someone once told me it does not exist. We fight our instincts all the time, but they always win. It sucks. You also need to remember, the concept of the middle classes improving their way of life is new (about 40-50years old) prior to that the “masses” were oppressed slaves. Only the uber wealthy owned property (Study the Feudal System).
Nothing stays the same, just like cells are changing, evolving, so is the galaxy, and life and the economy. 2000 years ago, the people of Pompeii were walking around thinking – we are the best, most modern city in the world. It will be like this forever.
Now it’s just rubble. Nothing lasts forever. Does not mean it’s a bad thing.

“The master minds of this changes are very much happy to see inter-generational conflict emerging in the West because of the GFC.” – you will find the master minds, want inter-racial conflict, intergalactic conflict ANY conflict. They are part of a community of Psychopaths/Sociopaths they will kill and mame for money. Born without a conscience. Their brains are not the same as yours or mine. And they have interests in arms dealing, weapons manufacturing. It makes them filthy rich. My parents survived WWII, and they told me “War is not hell, it’s BIG BUSINESS”

The human condition will likely be solved by living much simpler lives,
The upcoming generations will have a much harder time of things than us, we are likely living during one of the more favourable times,
Nothing ever stays the same, “change is natures delight”
The industry of War is a racket, (http://dailyreckoning.com/the-american-war-racket/) a piece I enjoyed on it.

I’m not convinced that any single mastermind or group of masterminds are behind the aggregate of societal injustice. At least on a global and western scale that is. There will always be nutjobs that become tyrants somewhere in the world, but the ills of our modern, developed societies are not the work of any evil genius. There is no Wizard of Oz, there’s not even a little man behind the curtain pulling the levers! Such things are emergent phenomena arising from the aggregate innate weaknesses of human behaviour. We all have our faults, personal weaknesses, and biases; and our individual behaviors in aggregate result in these systemic flaws. Its only the rules that determine where the flaws arise.

No-one is in control – there is no meaning, no purpose, no grand overarching goal of civilization as it now stands. In short, modern life has no meaning.

People adopt habits, go to work, and keep themselves occupied to try and escape this fact, but in doing so all endeavor loses relevance. Jobs exist to keep us occupied, mortgages exist to keep us working, houses exist to keep us placated. Once again the illusions we have built are falling apart and we again wake up to the fact that none of it matters.

As Nietzsche wrote in 1887:
“I praise, I do not reproach, [nihilism’s] arrival. I believe it is one of the greatest crises, a moment of the deepest self-reflection of humanity. Whether man recovers from it, whether he becomes master of this crisis, is a question of his strength. It is possible…”

I offer no solution, only hope that whatever happens next, comes swiftly.

What we are seeing is an emergent behavior from a system-of-systems to the nth order with so many interconnected interests. Some interests are cooperative, some competitive. And it is all run by people with their own weaknesses, greed and self-interest.

But you lose me when you say that life has no meaning. Life has the meaning that you give it. For me life is about what I do with the (relatively short) time that I have here on this blue rock.

Come what may, that’s all you can do.

P.S. do you ever read Nietzsche while listening to Radiohead or do you (like me) fear the existential singularity that may result?

Dr Bob, thanks for the kind response.
While this probably isn’t the correct forum for this, to clarify, I mean that there is no inherent meaning to life, no external reason-for-being, and as such I agree with your summation – it is up to us to make some meaning in this relatively brief existence.
But we must make that meaning within an overall meaningless context – in the collective sense there is no grand scheme, and in the context in which we live day to day, there is no purpose. How can you reconcile an individual creating meaning in their own life in a world of utter absurdity? Surely that is the definition of being insane?
Only by confronting this core of meaninglessness can we shape a more meaningful existence. Anything less is denial and self-delusion.
Most of us distract ourselves from this sort of thinking by doing, and seeking material wealth, and in doing so perpetuate the absurdity.
At least, this is how I view things these days.

I try not to mix my poisons, but I once read Sartre during a heavy Amnesiac/Kid A phase… Clearly I’ve not recovered since 😉

Deceptive practices should be punished, regulation introduced to prevent in future.

Unfortunately it is very difficult to regulate against stupidity and/or greed in human behaviour. The woman in interview this who had obtained $750,000 loan to invest in shares using rental property as collateral – pleading ‘innocence’. Either there is more to this story or ‘Yeah, right’. The other woman with $4m+ – appeared well-spoken and intelligent, again surely there is more to the story – why did she obtain such a loan? I am left with a mixture of despair (appalling lending practice) and despair (stupidity) and skepticism (original motivation of some borrowers).

I assume Kate Thompson immediately reported alleged bank cooperation/encouragement of deceptive practices to relevant authorities, ie at the time they were taking place and at great threat to her $5m a year take.

What percentage of loans are deemed sub-prime (think it was around 20% at peak in US).

Quite the Coup with Anna Meares one from one well done, must have gone down a treat on the Big Screen at D&D? Maybe Swisse vitamins could use you guys pre RIO as sponsorship identification consultants.

Peter has been told not to post “there” but has not accepted the instruction. Thus he cannot post here. Unless there is gross inconsistency being applied I assume, as you who recently posted “there”, that you have acceded with the instruction given to you not to post there.

I posted ‘there’ in the past a few times, once to the effect MB was well up to the task of vigorous debate. Any official warning I have not received. No inconsistency. You and others obviously read posts ‘there’. Still fail to see the big deal.

If I had time, there would be nothing I would like better than to go right into the dark side’s domain and debate the spruikers there. I never ever assumed that that would make me unwanted at MB. Nor would I want MB’s moderators barring the spruikers from coming over here where we can shoot them down. I think it is not a good look, to bar the other side’s arguments, when a good robust debate would easily be won by the property skeptics like “us”.

3d1k August 14, 2012 at 1:33 pm is a stub (that’s why it’s out of sequence – look at the time of comments around it). 3d1k posted that comment as reply to some other comment. The comment that 3d1k replied to has been deleted, leaving 3d1k’s comment floating out of sequence and out of context (and I guess also out of order, which is why your reply won’t attach to it).
Sorry, I can’t help it – I pay attention to detail. Maybe they need me in the low doc loans area¿

3d1k, Yes it is a bit murky. I mean no one had a gun to these people heads, but some had documents changed after they signed; which is fraud. If it involves fraud at bank level I think the bank should wear the whole loss as they have greatest responsibility (lucky escape for some borrowers I suspect). Though in general if someone has borrowed too much it is on them personally (unless bad financial advice has been given).

The safe way to double your money is to fold it over once and put it in your pocket. ~Frank Hubbard

I thought “sub prime” meant “over 45% of the borrowers income going to service the loan”. I think you are correct that that was about 20% of the US mortgage market. I also bet it is a lot higher in Oz.

It helped in the USA, that 200 out of 260 cities, had no house price bubble at all, due to an absence of regulatory restraints on urban growth.

Back in 2006 I was talking to a mortgage broker who was going over the sums (and exponential cap growth projections) for a potential home loan. I wasn’t that interested, but was just dipping my toe in the water. I mentioned to him that my wife was pregnant and that that would affect my/our loan decision. So he said “OK, so a low-doc loan it is then”. I just stood up from the table and walked out of the room. My wife sometimes chastised me for my rudeness at the meeting, but I doubt she’ll do that again after she sees this.

Easy to see in hindsight how predatory the type of behaviour shown in the ABC story was, but I’m sure at the time there was no hint of risk, crazy as it sounds. Anyone calling for less financial regulations needs to justify their position in the face of the above contrary case.

Whats the story with the moderation round here? I make a observation implying that the public will soon be looking to string up mortgage brokers using PF as an example, and I get a first and final warning, while others here accuse him of burning paperwork and nothing is done.

It would be FAR wiser for an individual to factor in that everyone will get shafted paying more tax to bail out TBTF than for an honest individual to ASSUME 100% of another individuals dishonest credit.

The only solution to this involves a stripey boiler suit and shared toilet facilities..

its only human nature, if you know that the worst that can happen to you is you lose your job/bonus/stripper allowance then whats going to stop you even after you get caught, the risk reward ratio is basically 110% reward with -10% risk.

There has to be accountability for this.. slapping bankers wrists with a wooden ruler isnt going to make it go away all it does is ensure they dont get caught so easily next time.

These guys ran the financial world into the ground in 2008 and not even 12 months later they were back at it all again with twice as much leverage as before.

You’re right. However, I’m not sure you can stop the bankers as they’re always in bed with the politicians & the financial elite. The problem is, to work for someone like ASIC you need to have banking experience first in order to understand what’s going on. However, where profit is concerned, that’s like requiring members of the drug squad to have experience as coke addicts first..
But you can certainly change the daft laws pertaining to property, NG etc.

why bother? I lost 3 cases at the FOS who pretended to hear them, ignoring relevant financial, trading and investment research to make flawed inconsistent decisins which consitently biased against this consumer. ASIC did not want to know. the minister [labour] said he had no powers.
as long as buisness wags the dogs of politics, qwe will not have leaders who lead nations, but citizens who suffer death by a 1000 cuts.

FOS is an NGO. A government minister cannot intervene but the Commonwealth Ombudsman can investigate.
Contact the CO as soon as you become peeved with FOS, there is no need to allow FOS to wear you out with it’s tedious, ineffectual, red tape. IMO FOS should be FORCED to disclose this upfront to all who contact it for assistance. I suggested this to the CO around 12 mths ago, but suspect nothing has changed (at FOS).

I was just thinking about dodgy loans to SMSF trustees to purchase property within the SMSF. I wonder how that is going to work out with lower contribution levels. There is a lot more angles to this.

Whole issue though is that in so far as financial education, property is always seen as a low risk bet. Parents assisting their kids get into the property market as otherwise they will never have a property etc.

Aus Property forum, aka the troll nest. Peter was fraternising with the enemy.

“And does the rule apply to the rest of us?”

God knows why anyone else would want to post there, the place is wall to wall property bulls and investors, nary a contrarian in sight. Worth a visit for comedy value only but not a place for serious discussion.

All intermediaries played a role but as we know, “the snake rots from the head downs” and the banks with their relaxed lending practices are at the top of the list of people to blame. Its not a nice thing to watch people lose their homes and go through that hardship but at what stage does the Borrower take responsibility for their actions ? We are talking about adults aren’t we? it seems that when thing so bad the “i’ve been taken advantage song” is played at full volume.

This is so true. Before GFC, we approached Commonwealth Bank to be assessed for a home loan. With $100,000 deposit in the bank, the home loan specialist suggested we use $80,000 for mortgage insurance to be able to afford $700,000 home loan. I got angry as it has taken us so many years to save just to spend it in mortgage insurance and not on a hefty deposit. I told him I only want to borrow $ 300,000 as we are only low income earners.

What a revelation for someone trying to understand the workings of Banks in the financial world and what goes on behind the curtain. We all know Banks are predatory but really, how is money created and accounted for?

Michael, I agree. A classic, simple read. Pay yourself first and live off the remainder. There’s a quote ‘thrift is the greatest payrise’ or something similar, goes hand in hand with the best lesson from Babylon

The similarities to the ‘long con and the squid’ are telling. The banks were more than happy to feed off the immoral mortgage lenders. To say they are one step removed from the con is rubbish and shows nothing but the shameless greed of the executives and the snobbish distain of the boards.

Really good prospects seeing the number of commenters prepared to tolerate and debate the alternate view…been a while coming for some let me say. 🙂

I always found PF to be polite, considered and tolerant (in the face of at times highly derogatory criticism, don’t think he ever stooped to similar levels).

What readers have discovered is the vibrancy of debate and challenge of views, a digital duel if you like, is the essence of a lively site. Keep it civil, entertaining and a place all feel able to participate in.

As well as ASIC and APRA being hopelessly asleep at the wheel during all this, I’d like to know how all the internal and external auditors performed their work and walked away without uncovering any of these fraudulent loan documents, lax lending practices with obvious loopholes and woefully inadequate controls in vetting mortgage applications. Either the auditors were asleep at the wheel as well or they raised concerns and then accepted the excuses, reasons etc of management. The latter is probably worse!

I would also like to see Luci Ellis of the RBA come out and publicly justify her statements that “Australia did not having lax lending practices”

If this story gets much air time publicly I bet you every mortgagee who is struggling with their mortgage repayments (or who now thinks they may have bitten off more than they can chew is a flat/falling market) will be asking their broker and lender for copies of their mortgage application forms in the hope of finding it was fraudulently amended and thus giving them the opportunity to argue that they were lent to irresponsibly all in the hope of getting some mortgage debt written off. Banks and Brokers to be inundated with these request IMO